O&M

O&M: A Business Times feature flags that offshore drilling demand recovery nowhere in sight, as oil companies’ capex cut extends into 2016.

The vulnerability of rig cancellations is especially so in the both the floaters and jack-up segment. For the latter, a sizeable percentage of orders have been placed on a speculative basis.

Icarus Consultants cited that of over 120 jack-up rigs under construction, more than 50 are from owners with no rig operating experience.

For these rig-owner aspirants, little is holding them back from putting the incoming rigs for resale, or simply walking away from contracts, the consultant opines.

However, resale prospects are dim amid a drastic reduction in offshore drilling contracting activity.

Icarus Consultants sees that drilling for field developments will only recover in 2018, although activity in existing fields could continue where costs are low.

The BT feature also flagged that 30 rigs orginally scheduled for delivery in 2015 will be delayed 2016, where 60 units are scheduled. This further exacerbates the supply glut build up, with rig owners and operators already struggling to secure contracts ahead of scheduled deliveries.

In turn, rig builders such as Keppel O&M and Sembcorp Marine will face increasing inquiries for deferments, or to take ownership of the rigs.

The feature also highlighted five Keppel rigs which were slated for delivery in 3Q remains outstanding. For Sembcorp Marine, PPL Shipyard has two jack-up rig deliveries to Oro Negro in 4Q, aside the currently disputed rig with Marco Polo Marine.

Maybank-KE opines that even in a case where, oil prices rise to US$60-70/barrel, oil companies will first need to first mend their balance sheets before resuming spending, portending to delayed recovery for the O&M sector.

Maybank-KE has the following ratings:
Ezion (Buy, TP $1.28)
Keppel Corp (Hold, TP $7.70)
Nam Cheong (Sell, TP $0.12)
PACC Offshore (Buy, TP $0.50)
Pacific Radiance (Sell, TP $0.33)
Sembcorp Industries (Hold, TP $3.53)
Sembcorp Marine (Sell, TP $1.75)
Vard (Sell, TP $0.22)
Yangzijiang (Sell, TP $1.12)